Balances extracted from the Statement of Financial Position as at 31 December: 2020 2019 R R Plant and equipment 3 750 000 3 000 000 Investments 210 000 240 000 Inventories 1 290 000 1 230 000 Accounts receivable 1 140 000 1 050 000 Cash and cash equivalents 300 000 210 000 Ordinary share capital 1 860 000 1 860 000 Retained earnings 1 800 000 1 500 000 Long-term loan 360 000 210 000 Accounts payable 2 520 000 1 962 000 Dividends payable 120 000 150 000 Income tax payable 30 000 48000 Note: a) Plant and equipment was purchased but there was no disposal. b) The number of ordinary shares in issue was 930 000 c) Al purchases and sales of inventory were on credit (d) Credit terms to debtors are 30 days. Debtors took approximately 28 days to settle their accounts during 2019. QUESTION 4 Use the information provided in QUESTION 3 to answer the following questions: 4.1 Calculate the following ratios for 2021. Express answers to two decimal places. 4.1.1 Gross margin (2 marks) 4.1.2 Inventory turnover (2 marks) 4.1.3 Acid test ratio (2 marks) (2 marks) 4.1.4 Debt to equity 4.1.5 Eamings per share (2 marks) 42 (4 marks) 4.3 (3 marks) Are the collections from credt sales satisfactory? Motivate your answer by using the relevant ratio. Would the shareholders of Harmony Limited be satisfied with the retum on their investments? Motivate your answer with the use of a relevant ratio Suggest THREE (3) ways in which Harmony Limited can improve its gross margin ratio, without increasing the selling price of the inventories. 4.4 (3 marks) Balances extracted from the Statement of Financial Position as at 31 December: 2020 2019 R R Plant and equipment 3 750 000 3 000 000 Investments 210 000 240 000 Inventories 1 290 000 1 230 000 Accounts receivable 1 140 000 1 050 000 Cash and cash equivalents 300 000 210 000 Ordinary share capital 1 860 000 1 860 000 Retained earnings 1 800 000 1 500 000 Long-term loan 360 000 210 000 Accounts payable 2 520 000 1 962 000 Dividends payable 120 000 150 000 Income tax payable 30 000 48000 Note: a) Plant and equipment was purchased but there was no disposal. b) The number of ordinary shares in issue was 930 000 c) Al purchases and sales of inventory were on credit (d) Credit terms to debtors are 30 days. Debtors took approximately 28 days to settle their accounts during 2019. QUESTION 4 Use the information provided in QUESTION 3 to answer the following questions: 4.1 Calculate the following ratios for 2021. Express answers to two decimal places. 4.1.1 Gross margin (2 marks) 4.1.2 Inventory turnover (2 marks) 4.1.3 Acid test ratio (2 marks) (2 marks) 4.1.4 Debt to equity 4.1.5 Eamings per share (2 marks) 42 (4 marks) 4.3 (3 marks) Are the collections from credt sales satisfactory? Motivate your answer by using the relevant ratio. Would the shareholders of Harmony Limited be satisfied with the retum on their investments? Motivate your answer with the use of a relevant ratio Suggest THREE (3) ways in which Harmony Limited can improve its gross margin ratio, without increasing the selling price of the inventories. 4.4
